Diversifoods Oks $386 Million Takeover By Pillsbury

The Pillsbury offer was 50 cents a share lower but an all-cash deal worth approximately $386.4 million.

Pillsbury and Diversifoods said they had reached a definitive agreement under which Pillsbury launched a cash tender offer for any shares it didn`t already own at $11.50 per share. It added that any shares not acquired in the tender offer would be acquired for $11.50 in cash in a subsequent merger.

Horn & Hardart on Monday proposed a $12-per-share cash-and-stock acquisition of Diversifoods. In over-the-counter trading Tuesday, where it was the most heavily traded issue, Diversifoods stock closed at $11.37, up 12 cents a share.

Minneapolis-based Pillsbury also said it had purchased 2.3 million shares of Diversifoods` 33.6 million shares outstanding in recent open-market transactions.

To stave off any further action by Horn & Hardart, Pillsbury said, it and Diversifoods have agreed to give Pillsbury an option to purchase 16 million authorized but unissued shares at $11.50 per share.

Pillsbury, owner of Burger King Corp., had consistently denied rumors of its interest in Diversifoods, the country`s largest Burger King franchisee, with about 375 restaurants, and owner of other restaurant chains such as Godfather`s Pizza.

Horn & Hardart, owner of Burger King and Arby`s restaurants in New York state and Bojangles of America, has been discussing acquiring Diversifoods since acquiring control of more than 8 percent of its stock. The company had no comment on Pillsbury`s tender offer.

``(Diversifoods management) probably knows more about the people at Pillsbury; they`re a known quantity,`` said analyst Edward B. Keaney of Burns, Pauli & Co. Inc. in St. Louis. ``Moreover, Pillsbury`s offer is all cash--and right now, not subject to financing arrangements. Like they say, a bird in the hand is better than one in the bush.``

Analysts had questioned Horn & Hardart`s capability to raise the $316 million cash payment its offer had entailed. Its proposal also would have offered $52.5 million in its stock for remaining shares not tendered outside its own 2.81 million shares.

They pointed out that Horn & Hardart, without the cash amount in its bank account, would find the purchase even more unmanageable were Pillsbury to exercise its option on the additional 16 million shares.

Diversifoods said that although it considered the Horn & Hardart proposal, it rejected it because Diversifoods shareholders would have received common stock in a highly leveraged, merged company.

Furthermore, the company said, the proposal was conditioned on an unacceptable ``crown jewel`` option covering Diversifoods` Burger King operation. In other words, Horn & Hardart required a separate right to acquire the Burger King franchises that, if granted, would have deterred another bidder.